EU elections on the horizon – implications for carbon related policies

Source: Heren

2019/05/23

This analysis has originally been published in an extended version for ICIS EU carbon subscribers on 20 May 2019.

On 26 May 2019, a new EU Parliament will be elected. In this analyst update, we analyse the potential political dynamics in the new EU parliament and the historical and current positions of the respective political parties on energy and climate related files – with a specific focus on the carbon side.

In short

  • Overall, the current polls forecast that the two largest political centre-right and centre-left groups EPP and S&D will lose their majority, while Eurosceptic/right wing parties are expected to significantly increase their shares of seats
    • A key uncertainty remains on the question of their future formation, namely which parties will be part of which groups in Parliament such as EFDD, ECR, ENF or the new pan-EU group called the European Alliance of People and Nations (EAPN)
  • Looking at the current positions of the various groups on energy and carbon topics:
    • We currently do not see a clear parliament majority for any changes to the current EU ETS sectoral scope or the addition of a CO2 pricing element such as a CO2 price floor at the EU ETS level – it remains to be seen what actions/mechanisms EU political parties could support down the road for non-ETS sectors
    • On the other hand, we could see a majority in the EU Parliament supporting a 2050 carbon neutrality target – the key uncertainty will obviously be to what extent there is appetite in the Council for such a move

How will the next EU elections shape parliament majorities?

  • The upcoming elections are likely to redesign the balance of power in the EU Parliament more deeply than in the past
  • First, the European People’s Party (EPP) and the centre-left Socialists & Democrats (S&D) group, historically the two largest political groups, are expected to lose a total net of -73 seats, or respectively -15% to -20% of their current seats
    • This means that the centre groups EPP and S&D are likely to remain the largest political groups but are expected to lose their current 28 seat absolute majority in the EU Parliament
    • In parallel, it will be key to monitor the formation of the new Eurosceptic EAPN group – if it manages to secure the support of French right wing party Le Rassemblement National and other right wing parties, this new group could rival the biggest parties with potentially a representation exceeding 100 seats in the new EU Parliament
  • Second, the expected big winners of the EU elections could be the Eurosceptics and right wing/anti-immigration parties
    • In the current EU Parliament, those parties include the Eurosceptic/populist parties European Conservatives and Reformists (ECR), Europe of Freedom and Direct Democracy (EFDD) and the right wing party Europe of Nations and Freedom (ENF)
    • Matteo Salvini, Deputy Prime Minister of Italy and head of the right wing party Northern League, is currently attempting to form a new pan-EU group called the EAPN
    • The group is expected to draw members from the ECR, EFDD, and ENF, from parties such as the right wing German Alternative for Germany (AfD), Finnish Finns Party (PS), Danish People’s Party (O) and Nigel Farage’s Eurosceptic Brexit party
    • A caveat though for this group is that there is still uncertainties (FT article) on the inclusion of the following key parties:
      • Marine Le Pen’s right wing party Le Rassemblement National (RN) which is currently leading the polls in France ahead of Macron’s party La Republique en Marche (LREM)
      • Hungary’s right wing party Fidesz, which has recently been excluded from the EPP group
      • Poland’s Law and Justice (PiS), which is currently part of the ECR group
  • Third however, the centrist party Alliance of Liberals and Democrats for Europe (ALDE) and the Greens, usual partners of the EPP and S&D on carbon matters, are likely to make solid progress in political terms
    • ALDE is polling 8 seats higher than five years ago, the Greens 5 seats higher
    • This number could be boosted by the 21 seats that France’s LREM, led by President Emmanuel Macron, is likely to rack up in May – although Macron’s party has not declared its EU party allegiance yet and could end up not siding with anyone
  • Overall, the key takeaway is that the EPP and S&D, falling short of an absolute majority (very likely), will have to rely on ALDE as key partners (alongside the Greens)
    • This would be even more true if some factions of the EPP become more inclined by the new Eurospectic/right wing/populist party (EAPN)
  • The two graphs below provide an overview of the polls at EU and country levels

What are the usual political parties’ dynamics on key EU carbon relevant topics?

  • Historically, on energy and carbon files, we can witness broad trends on the voting behaviour of political parties – both in terms of how ambitious (on energy/carbon files) those parties are and the degree to which they are split internally on their positions
    • First, some groups like the S&D, ALDE, and the Greens tend to have a clear cut united position usually supporting a high level of ambition (e.g. 2030 framework targets and EU ETS reform)
      • In total, this “ambitious” block is forecast to lose -5 seatsIt is mainly dragged down by the S&D (-39) but ALDE (up to +29 with LREM) and the Greens (+5) could limit the damage 
    • Second, other groups like EFDD and ENF are usually united against more ambition and are also opposed to market mechanisms such as the EU ETS – Note that on the EFDD side, some split has sometimes appeared with for instance the Italian 5 star movement supporting very high EU ETS reform ambition (e.g. MSR file)
      • In total, this “non-ambitious” block is expected to collect a net gain of +40 seats. It is propped up by the ENF (+38) while the EFDD (+2) show limited changes in terms of seats grab
    • Third, there are groups like the EPP and the ECR which are usually split in terms of ambition on carbon topics
      • On the EPP side, the group often tends to see the climate related policies as a direct risk to EU industrial competitiveness
      • On the ECR side, the parties tend to be divided geographically with, for instance, UK Tories supporting more ambitious EU ETS reforms and Polish MEPs being against
      • In total, this “split” block is expected to see a massive net loss of  -58 seats. The EPP (-34) is leading the way in terms of seat loss, followed by the ECR (-24)
    • Note that we leave the GUE/NGL group aside as it is very ambitious on energy/climate topics but has historically opposed EU ETS reforms
    • Finally, on the UK side, according to the latest forecasts, Nigel Farage’s Brexit Party (current Parliament EFDD, new Parliament EAPN) is leading the polls in the UK and the conservatives (ECR) are in forth position after Labour and Lid Dems

What are the current positions of the political parties on key EU carbon relevant topics?

  • The table below provides an overview of the political parties’ positions on key energy and carbon topics based on their official manifestos and direct communications with our team
  • With the MSR legislation and the EU ETS reform having been enacted into law as well as the 2030 framework, there are no immediate EU ETS related files on the horizon in the short term
  • However, some key topics with potential implications on the EU ETS remain in the pipeline such as the 2050 CO2 target, phasing out of power generation technologies (e.g. coal and nuclear) as well as support for other technologies (e.g. RES)

Carbon pricing and EU ETS

  • As per the table above, on the topics “decarbonisation” and “GHG emissions”, the positions expressed by the different parties interestingly reflect the ongoing debate in Germany on reducing emissions in the non-ETS sectors, with some parties pushing for CO2 pricing and others for different options
    • At the EU level, some groups, including the ECR and ALDE, promote the idea of an expansion of the EU ETS to sectors currently not covered by the EU ETS
    • Others, i.e. Greens and S&D, favour the idea of a carbon price floor for the EU ETS
    • GUE/NGL advocates a carbon tax while abolishing the market based EU ETS
    • EPP seems to want to keep the current scheme without any major changes
  • At this point, we do not see a realistic momentum possible for an EU ETS CO2 price floor as this would be a price-based and not a volume-based mechanism
    • Such option has been historically opposed by political parties and the Commission
  • As for a sectoral expansion, transport or buildings are unlikely to be seen as suitable candidates for the EU ETS by EU legislators
    • Indeed, a carbon tax or a more simple mechanism for sectors not covered by the EU ETS like transport seems to be more probable options if there is appetite for specific emissions reduction measures

Climate neutrality by 2050

  • After the EU parliament voted in favour of a pathway towards carbon neutrality by mid-century in a non-binding resolution in March 2019, other players have joined the movement, led by French President Macron and lately supported by German Chancellor Merkel (article in German)
  • The pathway towards 2050 neutrality proposed by the parliament foresees an increased 2030 target of -55% compared to 1990 levels (vs. 40% currently)
    • S&D, ALDE, Greens and GUE/NGL directly stated their willingness to go for carbon neutrality by 2050, with GUE/NGL aiming for net zero emissions as early as 2040
    • ECR expressed their doubt of the possibility to reach net zero emissions by mid-century and therefore do not favour a fix neutrality target
    • In their manifesto for the 2019 elections, the EPP stated their willingness to “reach the EU emission reduction targets”, showing no appetite for increased targets at this point
    • However, the latest statements from EPP parties’ politicians indicate a potential shift towards the neutrality target
  • Overall, a neutrality target by 2050 could potentially gain concrete momentum considering a broadening support for the goal
    • Numerous uncertainties remain: on the composition of the new parliament; if the 2050 neutrality target makes it in legislation; if a legislative discussion on the 2030 target is re-opened
  • Note that in parallel of a potential increase in the 2030 CO2 target, more ambition could come from the MSR review in 2021
    • An increase in the Linear Reduction Factor (LRF) or a change in the current MSR parameters could potentially be on the table

Sebastian Rilling is Student Analyst – EU Power & Carbon Analytics. He can be reached at Sebastian.Rilling@icis.com

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